Ahead of the Open: Grains Firm on Export Speculation; Soy Consolidates Rally

Posted on 01/08/2019 7:57 AM

Grain Calls

Corn:  Up 1 to 2 cents
Soybeans:  Steady to down 2 cents 
Wheat: Up 1 to 3 cents

General Comment: Both sides in U.S.-China trade talks have said progress is occurring towards resolving the dispute. A second day of U.S.-China trade talks in Beijing extended into Tuesday evening, according to Reuters citing a source with knowledge of the meetings. The source confirmed to Reuters that talks were "ongoing", but few other details had emerged. U.S. Commerce Secretary Wilbur Ross predicted on Monday that Beijing and Washington could reach a trade deal that "we can live with.” Both U.S. and Chinese trade officials want guarantees for agreements reached this week. China approved five genetically modified (GM) crops for import on Tuesday, the first in about 18 months in a move that could boost its overseas grains purchases and ease pressure from the U.S. to open its markets to more farm goods. Traders said China was buying U.S. soybeans Monday, and that might explain some late-session pressure as Chinese traders closed long hedges. Given the damage the trade war is doing to both countries, negotiators need to find some way to give both nations a “face-saving” resolution. As the U.S. government shutdown enters what could be a record-breaking third week, key USDA reports continue to be on hold. President Donald Trump will address the nation tonight about what he calls a “Humanitarian and National Security crisis on our Southern Border.” This latest effort to break the impasse might work, but talks seem to be deadlocked to put the government back to work. A long shutdown runs of risk of eroding faith in regulations and institutions and may damage trade talks. North Korean President Kim Jong-un arrived in Beijing today for a 4-day visit with China President Xi Jinping. The trip comes as negotiations are underway for a second summit meeting between Mr. Kim and President Trump and seems to be another China negotiating tool.

Rain during the past week have diminished the extent of dryness in Brazil but coverage of 30-day dryness remains elevated and the next two weeks will be hot and dry. Showers will be scatted with few signs of well-developed storm fronts that would ease rising crop concerns. Heavy rains will stay north of the biggest Argentina corn and soybean growing areas with about 20% expected to be too wet. The Australian Bureau of Meteorology is forecasting an early demise of El Nino with cooling in the equatorial Pacific to cause neutral conditions by March or April. This means that other weather variables will drive world climate in the months ahead. This raises the US weather risk of drought.

Corn is seen firmer on speculation that China may soon buy U.S. corn in the wake of the positive Beijing trade talks this week.

Soybeans seen pulling back from a three-week high on light profit taking. Traders are eager to hear details about China pledges to buy U.S. farm goods from this week’s U.S./China trade talks.  Dry weather in Brazil also lending support on rising yield risks.

Wheat futures seen resuming last week’s advance on renewed speculation that competitive U.S. wheat prices will boost overseas demand for U.S. wheat supplies. Yesterday the dollar fell to the lowest since Oct. 22, further improving the U.S. outlook.

Livestock Calls

Cattle: Steady-weak

Hogs: Steady-mixed

Cattle futures seen adding to Monday’s gains in early trade. Boxed beef cutout values were mixed on Monday with Choice 23 cents lower and Select up 55 cents. Wholesale beef sales were very good after a strong week of holiday sales last week

Hog futures seen steady to higher after wholesale pork prices rose 86 cents even as slaughter rose to 480,000 head on Monday up from 458,000 a year earlier. The national average cash hog prices jumped 67 cents. Positive U.S./China trade talk progress this week increases chances for stepped up China buying of U.S. pork amid worsening African swine fever outbreaks in China.

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